Rev. Rul. 80-100

1980-1 C.B. 25, 1980-15 I.R.B. 6.

                       Internal Revenue Service
                                 Revenue Ruling

      INDUSTRIAL DEVELOPMENT BONDS; EXEMPT SMALL ISSUE; PERPETUAL EASEMENT

                           Published: April 14, 1980

26 CFR 1.103-10: Exemption for certain small issues of industrial development bonds.

(Also Section 61: 1.61-7.)

  Industrial development bonds; exempt small issue; perpetual easement. The use of a portion of bond proceeds to acquire a perpetual easement to use land adjacent to a proposed plant site to provide better access will be treated as an acquisition of land within the meaning of section 103(b)(6)(A) of the Code.

ISSUE

  Will the use of bond proceeds to acquire a perpetual easement be treated as an acquisition of land within the meaning of section 103(b)(6)(A) of the Internal Revenue Code?

FACTS AND LAW

  M, a political subdivision of a state, proposes to issue industrial development bonds in the amount of $1,000,000 to finance the purchase of a manufacturing plant situated on land within M for lease to corporation X, a nonexempt person.  Bond proceeds of $850,000 will be used to purchase the plant and land.  The remaining bond proceeds of $150,000 will be used to acquire a perpetual easement to use land adjacent to the plant site that will provide better access to the plant.  Under local law the easement is an interest in real estate.  The political subdivision will not have any prior exempt small issues outstanding when the bonds are issued.  The bonds will not be arbitrage bonds within the meaning of section 103(c) of the Code.

  Section 103(a)(1) of the Code provides that interest on obligations of a political subdivision of a state is excludable from gross income.  Section 103(b)(1) provides that, with certain exceptions, industrial development bonds will not be treated as obligations described in section 103(a)(1). Section 103(b)(6)(A) provides one such exception.  This section provides that an exempt small issue of $1,000,000 or less of industrial development bonds will be treated as obligations described in section 103(a)(1) if substantially all (90 percent or more) of the bond proceeds are to be used for the acquisition of land or property of a character subject to the allowance for depreciation.

HOLDING

  The perpetual easement to be acquired by M is an interest in land and will be treated as an acquisition of land within the meaning of section 103(b)(6)(A) of the Code.  Because all of the bond proceeds will be used to acquire land, an interest in land, or property of a character subject to the allowance for depreciation, the exception provisions relating to exempt small issues under section 103(b)(6)(A) will apply.  Therefore, the proposed bond issue will not be treated as an industrial development bond and the interest on the bonds will be excludable from the gross incomes of the bondholders under section 103(a)(1).

Rev. Rul. 80-100, 1980-1 C.B. 25, 1980-15 I.R.B. 6.